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Crude oil’s week-long rally, driven by a supply shortage, eased on Tuesday as the Western energy watchdog forecast global inventories will rise next year.
The International Energy Agency has forecast that crude demand growth will moderate as the summer season ends in the United States in the coming weeks, and will be further factored in as planned production increases hit the market later in the year.
The dovish report helped cool crude prices aVsceker what the IEA described as “Olympic levels of volatility” last month.
Brent crude fell 1.5 percent to $81.03, aVsceker rising more than 7 percent since early August, when it was caught up in broader market fears that the U.S. was headed for a recession. WTI, the U.S. equivalent that also rallied, fell 1.5 percent to $78.89.
Oil prices have struggled to break out of a tight range this year, with crude averaging $83 a barrel, as expectations of weakening demand have been countered by tensions in the Middle East and production cuts.
Claudio Galimberti, director of global market analysis at research firm Rystad, said that “any bearish news” from this week’s U.S. inflation and Chinese retail sales reports could send the price below $80, especially if tensions in the Middle East ease.
The IEA’s monthly report showed that demand in the United States helped push consumption growth to 870,000 barrels a day in the second quarter, counteracting a slowdown in China.
The IEA expects demand growth to be offset by supply increases of around 1.5 million barrels per day this year and in 2025 from countries outside the OPEC oil-producing cartel, such as the United States, Guyana, Canada and Brazil.
The forecast remains valid even if some OPEC+ members extend voluntary production cuts that have supported crude prices for more than a year. The cuts, led by Saudi Arabia and Russia, are expected to unwind starting in the fourth quarter.
“Despite the sharp slowdown in Chinese oil demand growth, OPEC+ has yet to kick-start its plan to gradually ease voluntary production cuts starting in the fourth quarter,” said the IEA, which is mainly funded by OECD members.
The agency added that current balances suggest that even if OPEC+ cuts remain in place, global inventories could grow by an average of 860,000 barrels per day in 2025, as other producers continue to pump oil, which would “more than cover projected demand growth.”
For this year, the IEA expects global demand to increase by just under 1 million barrels a day, less than OPEC’s estimate of 2.1 million, and to grow at a similar level in 2025.
Separately, a report released Tuesday by S&P Global Commodity Insights argued that production growth in countries outside the OPEC+ group was slowing but would still be strong enough to outpace demand.
S&P said it expected OPEC+ to increase production as a way to maintain unity among members.
